The UK pound plummeted dramatically to a nearly four-decade low against the US dollar on Friday as investors fear the government’s plan to reinforce economic growth will worsen inflation flames.
The pound plunged below $1.10 for the first time in 37 years, falling as much as 3.2% as the currency pair fell to $1.0899.
The loss was set off after the UK’s new finance minister Kwasi Kwarteng outlined a mini-budget that included the most significant tax cuts since 1972, which will slash taxes by £45 billion by 2026. In aiming for a 2.5% growth trend, the plan includes scrapping a 45% income tax rate on earnings of more than £150,000 a year ($164,000) to keep the rate at 40% and reducing stamp duties paid by homebuyers.
“If foreign investors lose confidence in the country, its government and economy, which is happening at scale, Sterling could fall much further and the fallout will be devastating. This will keep inflation higher for longer and growth,” Philip Dragoumis director and owner at Thera Wealth Management in a note Friday.
